Question

Given net income is 300,000 (before adjusting for over and underapplied manufacturing overhead) and manufacturing overhead...

Given net income is 300,000 (before adjusting for over and underapplied manufacturing overhead) and manufacturing overhead is overapplied by 30,000.

What is the net income after adjustment for the overapplied manufacturing overhead? 270,000 is not an option.

a) 330,000

b) 300,000

c) 200,000

Business   Accounting   
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Answer #1

Option (a) is correct

Manufacturing overhead is over applied. It means that actual overheads are less than the applied overheads. So, we need to make the following adjusting entry for over applied overhead :

Debit Manufacturing overhead $30000

Credit Cost of goods sold $30000

After the above adjusting entry, Cost of goods sold will be reduced by $30000. When cost of goods sold is reduced, then net income will be increased by $30000. So, net income after the above adjusting entry is:

Net income (after adjustment) = $300000 + $30000 = $330000

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